By now, it has become eminently clear that the US$ 700 trillion annual derivatives” market was the instrument of greed that caused the present crisis of the financial markets, which erupted in 2009. Indeed, the size of the derivative”s market is some 12 times bigger than the world”s gross national product (GDP), which clearly evidences the extraordinarily high risk nature of the respective operations.
The world leadership in attempting to contain the abuses of the derivatives” markets was taken by the USA, where the crisis originated and was deeper. There, the legislative initiative was the enactment of the Dodd-Frank Act, in July 2010, which requires that the US Securities and Exchange Commission (SEC) writes rules addressing important issues as capital and margin requirements, mandatory clearing, the operation of swap facilities, in addition to business conduct standards for security dealers and major participants.
In the European Union (EU), the second largest market for derivatives and the abuses and frauds that are intrinsic to the trade, a new European Markets Infrastructure Regulation (EMIR) was proposed on July 1, 2012 to be applied "from the end of the year". Similar initiatives are taking place in Japan, Hong Kong, Australia and Singapore.
All of those regulatory efforts are directed in great part to rein expansion of "over the counter derivatives", or OTCs, which are transactions done by parties directly, without clearing by a stock exchange. Often, banks trade in this market directly with their clients in flagrant situations of conflict of interest in which the consumers are always the losers.
Brazil has one of the largest exchanges in the world trading derivatives in the form of futures and options. In 2010, the BMF-Bovespa became the 6th largest derivatives exchange in the world. For 2012, some 450 million contracts will be closed with a value of about US$ 22,2 trillion dollars or approximately 10 times the value of the Brazilian GDP.
As elsewhere, banks are the major players in the Brazilian market, often making easy money betting against the traditionally weak monetary policies of the government in the areas of exchange and interest rates. Banks in Brazil also enjoy making fat profits at the expense of their clients.
Thus, the institute of derivatives in Brazil, as elsewhere, became more of an instrument for profits for players in the financial services area, than one of assistance for the operation of businesses related to the real economy. Accordingly, the institutional risks of misdeeds in the derivatives” market in Brazil are almost as large as they are in the USA and in the EU.
The reaction of the Brazilian government to the threat has so far been not only inadequate, but puny and shy. On December 8, 2011, Brazil enacted law 12.543, requiring the registration of derivatives” contracts authorized by the Central Bank of Brazil or by the Securities” Commission. The law also allows those authorities to further regulate the market with respect of margins, deposits, limits, terms and other conditions. Some tax measures were also created to restrain the amount of speculative capital from abroad coming into the country.
So far, in Brazil, as elsewhere, nothing has been done to effectively and dramatically contain the speculative nature of the derivatives” market, as they exist today. More need to be done.
Lawyer admitted in Brazil, England and Wales and Portugal. GATT and WTO panelist. Brazilian government ad-hoc representative for the Uruguay Round of the GATT. Post-graduation professor of the law of international trade.